 In this presentation we will take a look at multiple choice questions related to bonds, notes payable and long-term liabilities. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. First question the market value of a bond is a the present value of all future cash payments, b the present value of all future interest payments, c the present value of the principal, d the future value of all cash payments and e the future value of all future interest payments. Okay let's go through this the bond value the market value of a bond. Now when you say the market value of a bond what you're really looking for is the price you're gonna sell it for. What are you gonna sell it for and it's not gonna be equal to the face amount of the bond because the interest on the bond could be different than the market rate. So if we go through these then the print word obviously it has something to do with time value of money because all these have to do with present value and future value stuff. So a says the present value of all future cash payments. That sounds kind of reasonable. B says the present value of all future interest payments and c says the present value of principal payments. So a, c, a, b and c are kind of breaking out all the different combinations of the types of payments. There's only two. We're gonna get the principal back and we're gonna get the interest back. So is it the present value of you know which of those present values would it be? And then d says the future value of all future cash flows and e says the future value of all future interest payments. Now of those two the question then is well is it present or future value. Now typically if we're trying to see the price as of today we're looking for the present value. So it's not gonna be d or e because we're not looking for the future value. We don't want to know how much it costs in the future. We want to know what the price is now. So it's gonna be one of the present values. And of the three present values we're gonna go through this again. The market value of a bond is the present value of all future cash payments. That sounds pretty reasonable. B says the present value of just the interest or just the principal present value. And it's really gonna be a because that's that's what the value is now right. We're gonna say what are we gonna get from this bond. We're gonna get interest payments and we're gonna get a principal payment at the end. We want to know what those payments are worth today discounted at whatever the current market rate is. And that'll give us basically the price. So the market value of a bond kind of the selling price of the bond is gonna be a the present value of all future cash payments. Next question which is an advantage of bond financing. A bonds do not change owner control. B bonds require payments at maturity. D bonds pay interest. E bonds payback interest and principal. Now when you think about these advantages and disadvantages of bonds you got to kind of think contrast them to something else. I mean we're buying bond or maybe we're selling bonds. Why to get cash? What else could we do to get cash? Well we could issue stock or we could take out a loan. Those are our other two options. So what are the advantages of bonds is kind of like what are the advantages as compared to other financing options typically. So which is an advantage of a bond financing. A bonds do not charge do not change owner control. And that's true because we issue bonds unlike stocks that's what it's comparing to. That's what you got to kind of just know like why would they even ask that. Well because another way of financing like stocks does get cash but it requires us to give us control of the business. Some control. And then B says require payment at maturity. That's true but it's not good. We don't like to have payments at maturity. Is there another way to finance where we wouldn't have payments at maturity. Yeah through stocks but we'd have to give up some control to do it. So B is not an advantage. D says bonds pay interest. And again that's true but it's not an advantage. That's a disadvantage. We don't want to pay interest. Is there any way we could finance and not pay interest. Yeah if we issued stock but then again we'd have to give up the control. And then E says bonds pay back interest and principal. And again both those things we don't like. Is there any way we would not have to pay back interest in principle. Yeah if we issued the stock then we wouldn't have to pay back the interest in principle. But the disadvantage is going to be a. So the question and answer once again. Which is an advantage of bond financing. A. Bonds do not change owner control.